ASSETS Get Compliant and Stay Compliant with DOL Whitepaper
Get Compliant and Stay Compliant with Department of Labor (DOL) “Final Rule” Fiduciary Regulations White Paper Get Compliant and Stay Compliant with the New Department of Labor (DOL) “Final Rule” Fiduciary Regulations In April 2016, the Department of Labor (DOL) issued its “final rule” on fiduciary responsibilities of those providing investment advice and products to retirement accounts and employee benefit plans. The ruling was in response to President Obama’s request for changes in regulatory oversight of retirement investing after the financial crisis of 2008. In particular, the Obama administration was concerned about potential predatory practices with elderly investors and their life savings. Understanding and complying with this rule is critical to all participants in the wealth management and insurance industry in order for you to retain wallet share and market share. Understand the basics Here are the important things you need to know about the ruling: • Who’s affected? Those who provide investment advice and sell investment products and services related to employee benefit plans and retirement accounts. The rule expands the definition of fiduciary in this context, so the bulk of the impact falls not only on financial advisers and investment representatives per se, but also primarily on plan sponsors, funds, and producers who provide incentives and commissions to advisors. • What’s changed? Advisors and sponsors of retirement accounts and employee benefit plans must adhere to an expanded fiduciary standard of putting their clients’ best interests before their own profits and incentives. • What’s the impact? Potentially far-reaching effects spanning business, compliance, operations, and technology. Of particular note, disclosure requirements are significantly enhanced. • How should firms respond? If you haven’t begun planning and preparing to meet upcoming deadlines, start now. Some relief is available through one of two exemptions: • The Best Interest Contract (BIC) exemption allows financial institutions and their individual brokers and advisors to market and sell investments to retirement investors or “retail” plan and IRA investors.1 • The Principal Transactions (PT) exemption applies to the purchase or sale of certain securities where the fiduciary is the principal. The BIC in particular is key to helping you retain customers and wallet share. Under the BIC, there aren’t any restrictions on asset type when you satisfy, among other conditions, the following: • Adhere to impartial conduct standards, as defined in the exemption, and adopt policies and procedures to assure adherence. • Acknowledge that advisors are acting as fiduciaries under ERISA or the Internal Revenue Code of 1986 or both. • Disclose information related to fees, compensation, and material conflicts of interest. • Retain records and provide reports that demonstrate compliance with the exemption. 1 DOL issues final fiduciary rule and related exemptions, April 18, 2016, https://www.dlapiper.com/en/us/insights/publications/2016/04/dol-issues-finalfiduciary-rule/ The DoL Final Rule Has Broad Business Impacts 9 Business 9 Audit and Compliance 9 Operations and Technology Key Deadlines Applicability: April 2017 Full compliance: January 2018 Note that not all companies are eligible for the BIC exemption, and some firms may choose not to apply. Consult with your legal team to see whether pursuing these exemptions makes sense for your business. Assess the impact Many firms are in the early stages of assessing the rule’s impact, sorting through legal interpretations, and preparing for regulatory compliance. The long-term effects are likely to have impacts on fee and commission structures for investors and on how firms provide service to small accounts, leveraging technologies such as robo-advisors and moving to flat-fee structures rather than commission-based incentives. In the short term, there are a number of questions you must answer because they have implications for your business, audit and compliance, and client servicing technology and operations: Business • What is the scope of impact on accounts, advisors, transactions, and investors? • What are the criteria and requirements for the exemptions? • How do compensation plans and sales processes need to change so they align with the BIC and PT exemptions, if applicable? • What is different now compared to current and long-standing regulations and exemptions? Audit and Compliance • What specific changes need to be made in account and transaction-related disclosure requirements? • What are the enhanced audit, compliance, and regulatory reporting requirements for account opening, fee disclosures, rollovers, and sales? • How can product offerings and fee structures be streamlined to ensure greater regulatory compliance? • What requirements for supervision and training of financial advisors will ensure compliance with the impartial conduct standards? Operations and Technology • How are policies, processes, and procedures affected by the enhanced reporting requirements? • What are the optimal means to meet regulatory compliance by the DOL applicability date? • What level of account repapering is required? • What technology and client operations changes will be needed for the additional disclosure, audit, and reporting requirements? Develop your response strategy There’s no one right way to respond to the final rule, and you should work with your legal, operations, and technology teams to determine the response most appropriate for your business. That said, a number of things are required of all businesses affected by the rule. These potentially include rules-based applications for disclosures that are integrated with your firm’s reference data related to customers, accounts, products, fees, and commissions. And a clear audit trail. Firms are leveraging in-house and third-party applications like Pega, Salesforce, and Intelledox for draft questionnaires and dynamic rules engines to identify eligibility and generate disclosures. And they’re making corresponding changes to the administration platform for management and audit purposes. For initial repapering of accounts — i.e., ensuring customer acknowledgement of necessary disclosure documents — firms are taking a number of different routes: • Partnering with third parties to prepare and administer mass mailings and outbound call campaigns, with reliance on negative consent to complete the process. • Grouping communications by individual financial advisor’s investors and sending documents in batches. • Setting up disclosure websites required by DOL to provide up-to-date information about products, fees, commissions, third-party arrangements, material conflicts of interest, and so on. Individual disclosures potentially can be hosted on these sites and accessed by investors. As you digitize the response process, you may have to work around customer database issues including the potential lack of email addresses, especially for elderly retirees. Get compliant and stay compliant with DocuSign for Disclosures These deadlines are right around the corner, and businesses must act now to ensure they are in compliance. No matter which response route you take, DocuSign can assist you with impact and solution assessment and with on-time compliance by digitizing your operations. The DocuSign platform is capable now of meeting all of the requirements for getting compliant and staying compliant with the DOL’s final rule. And when you automate business processes, like those related to disclosures, you simplify cumbersome workflows and operate with solutions that can run automatically, without human intervention. Your customers can access, view, download, print, sign, and send documents quickly and easily, while the platform records all of the actions they take for an audit trail in compliance with the DOL rule. Get Compliant and Stay Compliant with DocuSign GET COMPLIANT STAY COMPLIANT April 2017: DOL Final Rule Applicability Date • Securing BIC exception, where applicable • Potential bulk repapering of accounts under scope, with enhanced account-related and BIC exemption-related disclosures • Enhanced audit, compliance, and regulatory reporting requirements to meet BIC exemption requirements Post-January 2018: DOL Final Rule Regulatory Compliance Deadline • Annual account and investment-related disclosures • Potential BIC exemption transaction-related disclosures • Continued enhanced audit, compliance, and regulatory reporting requirements to meet BIC exemption requirements WHEN: WHAT: In January 2016, DocuSign convened its Financial Services Consortium to understand platform and product enhancements for financial and fiduciary disclosures. Consortium members have worked with DocuSign to: • Help define business and technical requirements • Participate in weekly meetings and provide feedback • Coordinate user experience feedback and testing • Participate in solution testing With this help, DocuSign is enhancing the platform to create an even better customer experience related to disclosures that also meets the regulatory requirements of the Department of Labor. DocuSign for Disclosures Accelerates Regulatory Compliance Plan sponsors, fund, and asset management firms Financial advisors, brokers, and wealth management firms RULES ENGINE FOR DISCLOSURES In-house and Vendor Applications REFERENCE DATA Commissions and Fees Product Account Costomer For Discolosures Exemptions, regulatory compliance, and reporting Investors and advisory cients Leverage the experience of the industry leader Using DocuSign for Disclosures to digitize your document agreements and respond to the DOL’s final rule provides a number of benefits: • Satisfy compliance requirements by enabling you to automate disclosures with a tamper-proof audit trail. • Delight your customers by providing a greatly improved user experience compared to paper-based document transactions. • Meet critical deadlines with rapid implementation using DocuSign’s SaaS-based solution. • Realize rapid ROI by protecting market share while eliminating printing and shipping costs and enhancing employee productivity. • Work with existing systems and processes with seamless integration to systems such as Pega, Salesforce, Intelledox, and in-house applications. • Provide bank-grade security with document encryption and higher levels of authentication than paper agreements. • Stay ahead of the curve by leveraging DocuSign’s work with its Financial Services Consortium to continue evaluating impacts of future rulings and roll out new capabilities to address them. Responding to the final rule requires expert assessment, planning, and implementation. Time is running out to achieve compliance, especially considering the far-reaching impacts the final rule is expected to have across your business. DocuSign is a fixture in the financial services industry, working with more than 90% of the top financial services institutions. About DocuSign DocuSign is changing how business gets done by empowering anyone to transact anytime, anywhere, on any device with trust and confidence. DocuSign keeps life moving forward. For U.S. inquiries: toll free 866.219.4318 | docusign.com For EMEA inquiries: phone +44 203 714 4800 | email email@example.com | docusign.co.uk Copyright © 2003-2016 DocuSign, Inc. All rights reserved. DocuSign, the DocuSign logo, “The Global Standard for Digital Transaction Management”, “Close it in the Cloud”, SecureFields, Stick-eTabs, PowerForms, “The fastest way to get a signature”, The No-Paper logo, Smart Envelopes, SmartNav, “DocuSign It!”, “The World Works Better with DocuSign” and ForceFields are trademarks or registered trademarks of DocuSign, Inc. in the United States and or other countries. All other trademarks and registered trademarks are the property of their respective holders. Follow Us: The good news is you don’t have to figure this out alone. DocuSign’s experience in financial services can help ensure that you get compliant and stay compliant with DOL requirements in time for the upcoming deadlines, with as little difficulty as possible. For more information Visit www.docusign.com or contact your account executive to learn more about how DocuSign can help you comply with the DOL’s final rule regarding financial and fiduciary disclosures.